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Pending home sales end year on high note

Pending home sales moved up slightly in December for the third
consecutive month, suggesting sales will start the year on a solid footing, the National Association of Realtors (NAR) reported Wednesday.

The
trade group cautioned, however, that the higher contract activity for existing homes might not
last. The market continues to suffer from a nationwide housing shortage and
higher prices, and the impact of the recent tax changes remains a wildcard, the
trade group said.

“Another month of modest increases in contract activity is
evidence that the housing market has a small trace of momentum at the start of
2018,” NAR Chief Economist Lawrence Yun said. “Jobs are plentiful, wages are
finally climbing and the prospect of higher mortgage rates are perhaps
encouraging more aspiring buyers to begin their search now.

“Sadly, these positive indicators may not lead to a stronger
sales pace,” Yun added. “Buyers throughout the country continue to be hamstrung
by record-low supply levels that are pushing up prices — especially at the
lower end of the market.”

NAR’s pending home-sales index rose 0.5 percent to 110.1 in
December, up from an upwardly revised 109.6 in November. The index also was 0.5
percent higher than at the end of 2016. The index ended the year at its highest
level since March (111.3).

Regionally, pending sales picked up in December in the South
and West regions over the November level, but declined in the Northeast and
Midwest.

NAR has estimated that 5.51 million existing homes were sold
in 2017, up 1.1 percent compared to 2016. It also forecasts sales to increase to
5.54 million in 2018. There are some wildcards, however. One is the impact of
tax reform. Under the Republican overhaul, the deduction on mortgage
interest was minimized, and the new code also now caps the deduction for state and
local taxes, including property taxes, at $10,000. NAR, which was strongly
against the GOP tax package prior to its passage, has recently softened it
position.

“In the short term, the larger paychecks most households
will see from the tax cuts may give prospective buyers the ability to save for
a larger downpayment this year, and the healthy labor economy and job market
will continue to boost demand,” Yun said. “However, there’s no doubt the
nation’s most expensive markets with high property taxes are going to be
adversely impacted by the tax law.

“Just how severe is still uncertain, but with homeownership
now less incentivized in the tax code, sellers in the upper end of the market
may have to adjust their price expectations if they want to trade down or move
to less expensive areas,” Yun continued. “This could in turn lead to both a decrease in
sales and home values.”

On a more positive note, NAR expects single-family housing
starts to increase by 13.3 percent, to 961,000 this year. That could push new-home
sales up 15.3 percent compared to the 2016 level, to 701,000, the trade group
said. New homes tend to be more expensive and aimed at move-up buyers. More sales
of new homes are viewed as a key to increasing the inventory of affordable starter
homes.